Quarterly Personnel Update-- 2021_06
Peter Kuhn
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5.5: Multi-task Principal-Agent Interactions
Abeler, Johannes, Armin Falk and Fabian Kosse. Malleability
of Preferences for Honesty
CESifo
Working Paper No. 9033, April 2021
An important aspect of many jobs that is particularly hard to incentivize directly is telling the truth. Fortunately, a recent literature has found that many people have a preference for honest reporting, contrary to usual economic assumptions. In an experiment on children, Abeler et al. show that these preferences for honesty can be increased by a mentoring program, with effects that last at least four years.
Gibbs, Michael. 2021 Job
Design, Learning & Intrinsic Motivation IZA DP No. 14285
The author argues that the enjoyment people
derive from learning may be an important source of intrinsic motivation:
Learning may make work less onerous, or the employee may value it in and of
itself. Learning also interacts with multi-tasking, since jobs with multiple
tasks offer more opportunities to learn.
In the paper, the author discusses the optimal design of incentive pay,
and optimal job design when different tasks offer different learning
opportunities and workers enjoy learning.
Evidence on Employee Motivation
8. Safelite and Other Incentives Success Stories
Gupta, Atil. Impacts of Performance Pay for Hospitals: The Readmissions Reduction Program. American Economic Review 2021, 111(4): 1241–1283
US policy increasingly ties payments to hospitals to indicators of service quality, such as readmissions rates. The author shows that this increase in pay-for-performance successfully reduced readmissions and reduced heart attack mortality, mostly via improvements in service quality.
9.3-9.4 Large Stakes
Neyse, Levent, Magnus Johannesson & Anna Dreber. "2D:4D does not predict economic preferences: Evidence from a large, representative sample." Journal of Economic Behavior and Organization, 185: 390-401.
The authors re-evaluate a recent series of small-sample studies claiming that digit ratio (2D:4D) is associated with a number of economic preferences, including risk taking, altruism, positive reciprocity, negative reciprocity and trust. Using a large pre-registered experiment on a representative sample of adults, the authors find no statistically significant association between 2D:4D and economic preferences.
Enke, Benjamin, Uri Gneezy, Brian Hall, David C.
Martin, Vadim Nelidov, Theo Offerman, and Jeroen van de Ven (2021) Cognitive
Biases: Mistakes or Missing Stakes? NBER working
paper no. 28650
This paper tests the effect of incentives on four widely documented biases in
human decision making: base rate neglect, anchoring, failure of contingent
thinking, and intuitive reasoning (as measured by Cognitive Reflection Test). In laboratory experiments with 1,236 college
students in Nairobi, the authors show that very high stakes raise the time
taken to make decisions by 40 percent. Performance,
on the other hand, improves very mildly or not at all. Even the highest incentives fail to completely
de-bias the participants (i.e. induce rational decisions).
Ambuehl, S., Niederle, M., & Roth, A. E. (2015). More money, more problems? can high pay be coercive and repugnant? American Economic Review, 105(5), 357– 360.
This study asks whether people view high economic incentives as unfair or coercive. In a vignette experiment about the ethicality of medical trials, the authors show that a substantial minority of subjects believes they are. They think high incentives would cause more people to regret their decisions and view incentivizing poorer participants as being especially repugnant.
9.5-9.6: Loss Aversion and Reference Points
Seibold, Arthur. Reference Points for Retirement Behavior: Evidence from German Pension Discontinuities American Economic Review 2021, 111(4): 1126–1165
This paper shows that people view publicized “normal” retirement ages as reference points. Large numbers of people choose to retire at exactly those ages, even though there is no economic incentive to do so.
9.7 Present Bias and Procrastination
Dertwinkel-Kalt,
Markus, Holger Gerhardt, Gerhardt Riener, Frederik Schwerter, Frederik and
Louis Strang. Concentration
Bias in Intertemporal Choice CESifo Working Paper No. 9011, April 2021
The authors identify a previously unrecognized form of bias in intertemporal choice: concentration bias. Specifically, subjects over-value high rewards that are present for short periods of time, relative to low costs that are spread over longer periods of time. As a result, they agree to perform overtime work over a large number of days in return for brief, higher rewards that do not warrant this much effort according to standard discounting models.
10.1-10.3: Gift Exchange and Reciprocity
Fehr, Ernst, Michael Powell and Tom Wilkening Behavioral Constraints on the Design of Subgame-Perfect Implementation Mechanisms American Economic Review 2021, 111(4): 1055–1091.
Principal-agent contracts that are designed for rational agents (like the ones in Part One of the book) can perform quite poorly when agents exhibit reciprocal behavior. Specifically, agents react to large penalties for misbehavior (lying, or mis-using arbitration opportunities) by retaliating against the principal, even when the fines are legitimate. In contrast, contracts that take agents’ ‘behavioral’ propensities into account can perform much better.
10.6 Trust and the Cost of Control
Macchiavello, Rocco and Ameet Morjaria “Competition and Relational Contracts in the Rwanda Coffee Chain” The Quarterly Journal of Economics, Volume 136, Issue 2, May 2021, Pages 1089–1143
In a study of relationships between Rwandan coffee farmers and the mills that purchase their coffee, the authors find that increased competition among mills reduces the farmers’ profits. It does this by hampering relational contracts between farmers and mill owners. These (legally unenforceable) relational contracts include inputs and loans provided by the mill to the farmers before harvest, coffee sold on credit by farmers to the mill during harvest, and assistance from the mill to the farmers that is unrelated to the harvest. When many mills are present, farmers have a greater incentive to default on their relational contract with mill owners, causing markets to function poorly as trust between the parties declines.
10.7 Fairness Among Workers
Böheim, René and Sarah Gust. The Austrian Pay Transparency Law and the Gender Wage Gap CESifo Working Paper No. 8960, March 2021
Starting in 2011, Austria required large employers to publish reports of pay among their workers. The authors show that this transparency law did not change wages or the gender wage gap. This study asks whether people view high economic incentives as unfair or coercive. In a vignette experiment about the ethicality of medical trials, the authors show that a substantial minority of subjects believes they are. They think high incentives would cause more people to regret their decisions and view incentivizing poorer participants as being especially repugnant.
Selection
17: Setting Pay: Monopsony Models
Derenoncourt, Ellora, Clemens Noelke, and David Weil. Spillover Effects from Voluntary Employer Minimum Wages unpublished paper, UC Berkeley, March 2021
In recent years, several large, private U.S. employers have adopted company-wide minimum wages. Using data from millions of online job ads, the authors study the effects of recently-introduced minimum wages at Amazon, Walmart, Target, and Costco on other local employers. They show that these policies led to wage increases at low-wage jobs at other employers in the same commuting zone (CZ). These results imply that Amazon and other large employers have monopsony power in local labor markets.
Schubert, Gregor, Anna Stansbury, and Bledi Taska 2020 Employer Concentration and Outside Options Unpublished paper, Harvard University.
The authors study the effect of employer concentration on wages using improved ways to isolate exogenous variation in employer concentration, and improved measures of workers’ outside options. Overall, the authors find that employer concentration reduces wages by a modest amount: moving from the median to the 95th percentile of employer concentration reduces wages by 3%. Since most U.S. workers are not in highly concentrated labor markets, their wages are not substantially affected by employer concentration. Nonetheless, an important subset of workers in low-outward-mobility occupations and in small labor markets experience meaningful negative wage effects from employer labor market power.
19: Training
Gong, Jie, Ang Sun and Zhichao Wei. “Choosing the Pond: On-the-Job Experience and Long-run Career Outcomes.” Management Science, Vol 64, Issue 2 (2018): 860–872
Access to projects that offer the opportunity for skill building is widely considered to be a desirable feature of a job. Measuring the effects of such learning opportunities, however, is challenging because employers might give the most desirable opportunities to workers who would advance in their careers regardless. To circumvent this problem, the authors compare soccer teams that were marginally demoted from the English Premier League with marginally non-demoted teams. The incumbent players in the marginally demoted teams play significantly more matches, move to better leagues, and earn higher salaries in the long run. These results suggest the opportunity to play has a strong effect on career success—strong enough to outweigh the advantages of being in a more prestigious league.
Deming, David J. 2021 The Growing Importance of Decision-Making on the Job NBER working paper no. 28733.
As machines continue to replace people in routine tasks, the tasks left to humans require them to make more open-ended decisions using “soft” skills such as problem-solving, critical thinking and adaptability. This paper documents growing demand for decision-making and explores its consequences for life-cycle earnings. Career earnings growth in the U.S. more than doubled between 1960 and 2017, and the age of peak earnings increased from the late 30s to the mid-50s: people appear to improve longer and peak later in life. Much of this shift is explained by increased employment in decision-intensive occupations.
Gibbs, Michael. 2021 Job Design, Learning & Intrinsic Motivation IZA DP No. 14285
The author argues that the enjoyment people
derive from learning may be an important source of intrinsic motivation:
Learning may make work less onerous, or the employee may value it in and of
itself. Learning also interacts with multi-tasking, since jobs with multiple
tasks offer more opportunities to learn. In the paper, the author discusses the optimal
design of incentive pay, and optimal job design when different tasks offer
different learning opportunities and workers enjoy learning.
Tournaments
21.3: Risk-Taking in Tournaments
Fang, Dawei and Thomas Noe 2021 “Less competition, more meritocracy?” 2021 Journal of Labor Economics forthcoming.
“Uncompetitive” contests for grades, promotions, retention, and job assignments (where there are only a few contestants and most of them get prizes) are often criticized for being unmeritocratic. But when contestants can choose how much risk to take, the authors show that lax standards and small contestant pools can make selection more meritocratic. When many contestants compete for a few promotions, strategic contestants adopt high-risk strategies, which reduce the correlation between performance and ability and therefore raise the chances that a low-ability contestant will win.
Teams
25: Team Production in Practice
Bašić, Zvonimi, Parampreet C. Bindra, Daniela Glätzle-Rützler, Angelo Romano, Matthias Sutter and Claudia Zoller, 2021. "The Roots of Cooperation," ECONtribute Discussion Papers Series 097,
Many studies, including Fehr and Gächter (2002) have shown that teams perform better when we give members the opportunity to punish each other. But is the desire to punish free-riders innate or learned? To shed light on this question, these authors study the development of cooperation in 929 children, aged 3 to 6. They show that third-party punishment has a powerful, positive effect on co-operation even at very young ages.
26.3 Moderate Complementarity
Do Managers Matter? Evidence on Leadership
Huber, Kilian, Volker Lindenthal, and Fabian Waldinger Discrimination, Managers, and Firm Performance: Evidence from "Aryanizations" in Nazi Germany
To measure the effects of highly qualified managers on firm performance, the authors study the expulsions of senior Jewish managers from large corporations in Nazi Germany. Firms that lost Jewish managers experienced persistent reductions in stock prices, dividends, and returns on assets. The authors conclude that individual managers matter for form performance, and that discrimination against qualified business leaders causes first-order economic losses.
27.1: Who Wants to Join Teams? Ability and Self Selection
Chen, Roy and Jie Gong. “Can Self Selection Create High-Performing Teams?” Journal of Economic Behavior & Organization, Vol 148 (2018): 20–33.
Teams in a workplace can be organized in a number of ways, including random assignment, assignment that attempts to maximize skill complementarities, or allowing workers to self-select. To measure which approach works best, the authors randomly allocated over 600 business students in a case study course to these three forms of team formation. When allowed to self-select, the students primarily teamed up with their social connections; these teams performed better than teams formed by random assignment, and just as well as teams assigned by a skill-complementarity algorithm. The authors conclude that social connections –which lead self-selected teams to work harder—can compensate for lower levels of skill complementarity to produce teams that function just as well.
Thanks for your attention!
Note: The article descriptions in these updates are not copies of the authors’ abstracts. While they may use text from those abstracts (and/or the article), they are my own summaries that (a) endeavor to be shorter than most abstracts, and (b) attempt to place the article in the broader context of personnel economics as a field. I hope that you will find them helpful.